On March 11, 2021, President Biden signed the $1.9-trillion COVID-19 relief package, American Rescue Plan Act of 2021 (ARPA), into law. ARPA included a number of provisions that address COVID-19-related employment issues, including a 100-percent Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) subsidy to provide assistance to eligible individuals (AEI). This subsidy applies to medical, dental, and vision plans, however, it does not apply to health flexible spending accounts.
The subsidy is in effect from April 1, 2021 through September 30, 2021, and relieves the separated employee’s obligation to make COBRA payments. It has left employers with a lot of questions. Last week, the Department of Labor (DOL) issued guidance on the issue.
This subsidy applies to all group health plans sponsored by private-sector employers or employer organizations, such as unions, subject to the COBRA rules under the Employee Retirement Income Security Act of 1974 (ERISA). This provision also applies to plans sponsored by state or local governments subject to the continuation provision under the Public Health Service Act. It is also available for group health insurance required under state mini-COBRA laws.
Generally, COBRA continuation coverage provides certain group health plan continuation coverage rights for participants and beneficiaries covered by a group health plan. ARPA provides COBRA assistance to help eligible individuals continue their health benefits if they would otherwise lose the coverage due to certain life events, such as loss of a job.
Individuals may be eligible for premium assistance under ARPA if they are eligible for and elect COBRA continuation coverage because of their own or a family member’s reduction in hours, or an involuntary termination from employment.
If an individual was offered federal COBRA continuation coverage as a result of a reduction in hours or an involuntary termination of employment and the individual declined at that time—or elected federal COBRA and later discontinued coverage—the individual may have another opportunity to elect COBRA continuation coverage and receive the premium assistance. The caveat is that the maximum period you would have been eligible for COBRA continuation cannot be expired.
Individuals are not eligible if they are eligible for other group health coverage plans through a new employer or a spouse’s plan, or if they were terminated for gross misconduct.
The premium subsidy is advanced by the employer or plan and will be reimbursed by the federal government through a refundable credit against payroll taxes. An employer can choose to include or not include the subsidy as a reportable cost for the calendar year for the period which the employee had continuing coverage under the plan. If an employer chooses to report, it should be reported under the regular COBRA rate applicable to the employee.
Additionally, all individuals potentially affected by this subsidy need to be notified, and employers are responsible for complying with the notice and payment requirements.
Before May 31, 2021, employers must notify AEIs during the six-month period that they may be entitled to premium-assisted COBRA coverage, and if permitted by the plan, the option to enroll in different coverage. Employers also need to notify individuals who may have opted out of COBRA, or individuals that originally elected COBRA, but have since dropped coverage, so that they have the opportunity to opt back in. Employers are also responsible for notifying AEIs when the COBRA premium assistance period is coming to a close. From an administrative perspective, determining who may be eligible to receive notice based upon events in the last year may be tricky.
The general maximum COBRA eligibility period is 18 months, but it can extend as long as 36 months if certain conditions are met. (e.g., disability or second qualifying event). To ensure compliance with ARPA, employers may want to examine anyone who became eligible for continued coverage since April 1, 2018, to make sure that those who are potentially covered are notified. Individuals who respond to the notice must establish their eligibility for the COBRA program, which would require demonstrating eligibility for any coverage extension claimed by the individual.
The DOL has developed model notices that are available here.
For more information or immediate guidance, contact: